The challenges facing the German economy, including stagnant growth, high inflation and weak manufacturing, will be at the top of Chancellor Olaf Scholz's agenda when political life picks back up after the summer break.

The International Monetary Fund (IMF) forecasts that a nation long lauded as Europe's industrial powerhouse would be the only major advanced economy to contract this year, signaling a deteriorating outlook for the nation.

But the remedies needed to get the country's stuttering motor running again are a matter of fierce debate within the country's uneasy, three-party ruling coalition.

What is the current picture?

The final figure for second-quarter growth was released on Friday, and it showed the economy stagnated from April to June, registering zero growth.

This followed two straight quarters of contraction – the technical definition of a recession.

Problems include weakness in the vast industrial sector and a lackluster performance by exports, both of which have major impacts on the whole of the economy.

These two key pillars are particularly sensitive to surging inflation, rising eurozone interest rates and the struggling economy in China, Germany's top trading partner.

As a result of rising prices and the cost of credit in Europe and the United States, companies' order books are suffering, in a country where industry represents over 25% of gross domestic product (GDP).

"Exports have created our wealth ... but as the global economy weakens, Germany takes it harder than others," Economy Minister Robert Habeck told weekly Die Zeit.

On top of that, German firms had to contend with the energy shock triggered by Russia throttling crucial gas supplies after its invasion of Ukraine.

Although prices have fallen since peaking last year after the German government rushed to find new suppliers, they remain above their levels before the war started.

Is the government getting to grips with it?

The current government is the first ruling coalition to comprise three parties in Germany's post-war history, comprised of Scholz's Social Democrats, the Greens – in charge of the Economy Ministry – and the pro-business FDP, who head the finance ministry.

But the coalition, which took power in late 2021, has been beset by disputes and squabbling, and economic policy is no exception.

One area of tension has been over Habeck's plan to cap the price of electricity used by energy-intensive industries until 2030 to insulate them against sharp cost increases.

The measure is aimed at keeping sectors such as the chemical industry competitive while the country boosts its capacity to produce renewable energy from sources like wind and solar, which are cheaper.

But it has provoked opposition from Habeck's coalition partners – Finance Minister Christian Lindner of the Free Democratic Party (FDP) has said it is "out of the question to intervene directly in the market by distributing subsidies."

Scholz is also against the plan, although some lawmakers from his own party have spoken in favor of it.

For his part, Lindner wants tax cuts for businesses – but the 6 billion euro ($6.46 billion) package that the government was supposed to adopt last week was blocked by a Green minister.

Are things really that bad?

Marcel Fratzscher, head of the Berlin-based DIW institute, says Germany's problems are structural.

The country needs a "long-term transformation program, with an investment drive, a broad (reduction of its bureaucracy) and strengthening of social systems," he said in an analysis published over the summer.

Several concerns on the economic front are widely shared – uncertainty about energy costs in the medium term, cumbersome regulations, a lack of skilled labor, and a slow shift to a digital economy.

The media have seized on the gloomy economic data as evidence things are going seriously wrong, an Economist cover story asking: "Is Germany once again the sick man of Europe?"

But some experts have struck a less alarmist tone.

"Germany is like a man in his 40s who has long been successful, but now has to reorient himself professionally," said Clemens Fuest, from the Ifo Institute.

Berenberg Bank economist Holger Schmieding said the "current wave of pessimism is far overdone", and the situation was different from a previous period of economic trouble, from 1995 to 2004.

"The government is already addressing some key issues, such as the shortage of labor and the long approval procedures that hold back public and private investment," he wrote in an analysis.